IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

The Strategic Perils of Delayed Differentiation

Listed author(s):
  • Krishnan S. Anand

    ()

    (Operations and Information Management, The Wharton School, University of Pennsylvania, 3730 Walnut Street, Philadelphia, Pennsylvania 19104)

  • Karan Girotra

    ()

    (Technology and Operations Management, INSEAD, Boulevard de Constance, 77305 Fontainebleau, France)

Registered author(s):

    The value of delayed differentiation (also known as postponement) for a monopolist has been extensively studied in the operations literature. We analyze the case of (imperfectly) competitive markets with demand uncertainty, wherein the choice of supply chain configuration (i.e., early or delayed differentiation) is endogenous to the competing firms. We characterize firms' choices in equilibrium and analyze the effects of these choices on quantities sold, profits, consumer surplus, and welfare. We demonstrate that purely strategic considerations not previously identified in the literature play a pivotal role in determining the value of delayed differentiation. In the face of either entry threats or competition, these strategic effects can significantly diminish the value of delayed differentiation. In fact, under plausible conditions, these effects dominate the traditional risk-pooling benefits associated with delayed differentiation, in which case early differentiation is the dominant strategy for firms, even under cost parity with delayed differentiation. We extend the main model to study the effects of alternate market structures, asymmetric markets, and inventory holdback. Our results--in particular that for a broad range of parameter values, early differentiation is a dominant strategy even under cost parity with delayed differentiation--are robust to these relaxations.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://dx.doi.org/10.1287/mnsc.1060.0655
    Download Restriction: no

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 53 (2007)
    Issue (Month): 5 (May)
    Pages: 697-712

    as
    in new window

    Handle: RePEc:inm:ormnsc:v:53:y:2007:i:5:p:697-712
    Contact details of provider: Postal:
    7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA

    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Web page: http://www.informs.org/
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Deneckere, Raymond & Marvel, Howard P & Peck, James, 1997. "Demand Uncertainty and Price Maintenance: Markdowns as Destructive Competition," American Economic Review, American Economic Association, vol. 87(4), pages 619-641, September.
    2. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
    3. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    4. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    5. Saloner, Garth, 1987. "Cournot duopoly with two production periods," Journal of Economic Theory, Elsevier, vol. 42(1), pages 183-187, June.
    6. Krishnan S. Anand & Haim Mendelson, 1998. "Postponement and Information in a Supply Chain," Discussion Papers 1222, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Dan Kovenock & Raymond Deneckere & Tom Faith & Beth Allen, 2000. "Capacity precommitment as a barrier to entry: A Bertrand-Edgeworth approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(3), pages 501-530.
    8. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    9. Giovanni Maggi, 1996. "Endogenous Leadership in a New Market," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 641-659, Winter.
    10. Leroy B. Schwarz, 1989. "A Model for Assessing the Value of Warehouse Risk-Pooling: Risk-Pooling Over Outside-Supplier Leadtimes," Management Science, INFORMS, vol. 35(7), pages 828-842, July.
    11. Marcel Boyer & Michel Moreaux, 1997. "Capacity Commitment versus Flexibility," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 347-376, 06.
    12. Lars-Hendrik Röller & Mihkel M. Tombak, 1993. "Competition and Investment in Flexible Technologies," Management Science, INFORMS, vol. 39(1), pages 107-114, January.
    13. Manu Goyal & Serguei Netessine, 2007. "Strategic Technology Choice and Capacity Investment Under Demand Uncertainty," Management Science, INFORMS, vol. 53(2), pages 192-207, February.
    14. Amir Rabah, 1995. "Endogenous Timing in Two-Player Games: A Counterexample," Games and Economic Behavior, Elsevier, vol. 9(2), pages 234-237, May.
    15. Pal, Debashis, 1991. "Cournot duopoly with two production periods and cost differentials," Journal of Economic Theory, Elsevier, vol. 55(2), pages 441-448, December.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:53:y:2007:i:5:p:697-712. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.